Energy Transfer (ET 0.12%) was busy last year. The master limited partnership (MLP) made two acquisitions. It bought Lotus Midstream for nearly $1.5 billion and merged with fellow MLP Crestwood Equity Partners in a $7.1 billion deal.

Despite making nearly $9 billion in acquisitions last year, the MLP is ready for its next deal if the right opportunity emerges. Here's a look at the impact of its most recent transaction and what it's looking for in the next one.

Moving the needle

Energy Transfer closed its acquisition of Crestwood in early November. The deal helped give the company the fuel to set several operational records last year while delivering earnings above the high end of its guidance range. "Integration of the combined operations has been going very well," said co-CEO Tom Long on the fourth-quarter call.

Long, who also serves as the MLP's CFO, noted that the company now anticipates capturing a total of $80 million in annual cost synergies by 2026, with $65 million expected this year. That's double the cost synergies the company initially anticipated when it announced the deal. On top of that, "We are in the process of identifying and evaluating a number of commercial and operational synergies that are expected to enhance the operational capabilities of our systems by improving efficiencies and increasing the utilization and profitability of our combined assets," he said. 

Because of that, the deal should fuel additional growth in 2024 and in the future beyond the initial earnings accretion expected at the time of the merger. The acquisition of Crestwood is one of the catalysts driving Energy Transfer's expectation that its earnings will rise by about 7% this year. It could continue growing at a solid rate in the future, fueled in part by additional operational synergies from the merger it could capture to enhance the profitability of its combined asset base.

Always evaluating

Given the recent closing of the needle-moving Crestwood acquisition, an analyst on the fourth-quarter call asked Energy Transfer's management team if it was still in digestive mode or ready to continue rolling up the midstream sector. Long discussed the company's approach on the call.

He stated that the company consistently believed consolidation made sense in the energy sector. That has increasingly happened over the past year and will likely continue. "And we're going to continue to evaluate opportunities," he said.

He then discussed what the company looks for in a deal. The first thing he highlighted was its disciplined approach to valuation. It seeks to make acquisitions at the current market value instead of paying a large premium, which is common in a corporate takeover. He also noted that the company looks for accretive deals that will also help deleverage its balance sheet. By focusing on these characteristics, the company can make a value-enhancing acquisition that enables it to continue increasing its distribution while strengthening its balance sheet.

The final characteristic the company seeks is that the acquisition is a solid strategic fit. That's a bit easier for Energy Transfer. Because it's so large, there are a lot of potential fits.

Given its strong financial profile (it expects its leverage ratio to be in the lower half of its 4.0-4.5 times target range this year) and rapid integration of Crestwood, nothing is hindering it from capitalizing on an acquisition opportunity should a compelling one arise. If it's a good value, accretive, deleveraging, and a strategic fit, Energy Transfer would be interested in doing another deal. Future accretive deals would enhance its cash-flow growth rate, giving the MLP more fuel to deliver on its target of growing its 8.7%-yielding distribution by 3% to 5% per year.

The consolidation should continue

Energy Transfer has long been a consolidator in the energy midstream space. While it made two notable deals last year, it's open to continuing to pursue mergers and acquisitions (M&A) opportunities as they arise. Given its recent M&A success, future acquisitions could help move the needle for the company by enhancing its ability to increase its high-yielding distribution.